Annual Report 2011 - SNL Financial

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Annual Report 2011 - SNL Financial

segments. This is because the workers’ compensation and segregated portfolio cell reinsurance segments derive their books

of business from the same general business demographics and geography. Prior period reserve development in the segregated

portfolio cell reinsurance segment results in an increase or decrease in the segment’s losses and LAE incurred and a

corresponding decrease or increase in the segregated portfolio cell dividend expense.

For the year ended December 31, 2011, the Company recognized net favorable development on prior accident year

segregated portfolio cell reinsurance reserves of $2.9 million, representing 12.6% of the Company’s estimated segregated

portfolio cell reinsurance reserves as of December 31, 2010 and 10.1% of the Company’s segregated portfolio cell

reinsurance net premiums earned for the year ended December 31, 2011. The favorable development arose primarily from

accident years 2010 and 2009, but was generally prevalent in most prior accident years, and resulted from actual loss

development being somewhat lower than the Company had expected based on its historical loss development experience,

reflecting continued improvements in loss mitigation and underwriting.

For the year ended December 31, 2010, the Company recognized net favorable development on prior accident year

segregated portfolio cell reinsurance reserves of $1.4 million, representing 6.5% of the Company’s estimated segregated

portfolio cell reinsurance reserves as of December 31, 2009 and 5.8% of the Company’s segregated portfolio cell reinsurance

net premiums earned for the year ended December 31, 2010. The favorable development arose primarily from accident years

2008 and 2009, but was generally prevalent in most prior accident years, and resulted from actual loss development being

somewhat lower than the Company had expected based on its historical loss development experience, reflecting continued

improvements in loss mitigation and underwriting. The improvements in loss mitigation and underwriting include greater

availability and use of employers’ return to work programs.

For the year ended December 31, 2009, the Company recognized net favorable development on prior accident year

segregated portfolio cell reinsurance reserves of $2.8 million, representing 12.5% of the Company’s estimated segregated

portfolio cell reinsurance reserves as of December 31, 2008 and 11.1% of the Company’s segregated portfolio cell

reinsurance net premiums earned for the year ended December 31, 2009. The favorable development arose primarily from

accident years 2006 and 2008, but was generally prevalent in most prior accident years, and resulted from actual loss

development being somewhat lower than the Company had expected based on its historical loss development experience,

reflecting continued improvements in loss mitigation and underwriting. The improvements in loss mitigation and

underwriting include greater availability and use of employers’ return to work programs.

13. Reinsurance

The Company purchases reinsurance to manage its loss exposure. Although reinsurance agreements contractually

obligate the Company’s reinsurers to reimburse the Company for the agreed upon portion of its gross paid losses, they do not

discharge the primary liability of the Company.

The following table provides a summary of the Company’s premiums on a direct, assumed, ceded, and net basis for the

years ended December 31, 2011, 2010, and 2009 (in thousands):

2011 2010 2009

Written Earned Written Earned Written Earned

Direct premiums ............................... $121,752 $113,612 $ 98,045 $ 90,414 $ 81,447 $77,335

Assumed premiums ............................ 36,041 33,221 30,232 29,332 29,747 29,009

Ceded premiums ............................... (15,672) (14,660) (11,656) (10,594) (8,858) (8,428)

Net premiums ............................. $142,121 $132,173 $116,621 $109,152 $102,336 $97,916

The following table provides a summary of the Company’s losses and loss adjustment expenses incurred on a direct,

assumed, ceded and net basis for the years ended December 31, 2011, 2010, and 2009 (in thousands):

2011 2010 2009

Direct losses and LAE incurred .................................................. $73,127 $60,968 $45,148

Assumed losses and LAE incurred ............................................... 16,031 18,611 16,002

Ceded losses and LAE incurred ................................................. (5,436) (2,005) (2,384)

Net losses and LAE ....................................................... $83,722 $77,574 $58,766

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